EMPLOYMENT AGREEMENT

                  AGREEMENT, made and entered into by and between Kmart
Corporation, a Michigan corporation (together with its successors and assigns
permitted under this Agreement, the "Company"), and James Adamson (the
"Executive").


                                   WITNESSETH:

                  WHEREAS, the Company and the Executive have previously entered
into that certain Services Agreement, effective as of January 17, 2002 (the
"Prior Agreement"), pursuant to which the Executive is serving as non-executive
Chairman of the Company; and

                  WHEREAS, the Company wishes to employ the Executive as the
Chief Executive Officer of the Company, in addition to retaining his position as
Chairman, and the Executive desires to be so employed by the Company;

                  WHEREAS, the parties hereto desire to enter into this
agreement embodying the terms of the Executive's employment with the Company
(the "Agreement");

                  NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Company and the Executive
(individually a "Party" and together the "Parties") agree as follows:

                  1. Definitions.

                           (a) "Base Salary" shall have the meaning set forth in
Section 4 hereof.

                           (b) "Board" shall mean the Board of Directors of the
Company.

                           (c) "Cause" shall mean:

                                    (i) the Executive is convicted of a felony
         involving moral turpitude or any other felony (other than motor vehicle
         related) unless, in the case of such other felony, the Executive (A)
         acted in good faith and in a manner he reasonably believed to be in or
         not opposed to the best interests of the Company and (B) had no
         reasonable cause to believe his conduct was unlawful; or

                                    (ii) the Executive engages in conduct that
         constitutes willful gross neglect or willful gross misconduct in
         carrying out his duties under this Agreement, resulting, in either
         case, in material



<PAGE>

         harm to the Company, unless the Executive believed in good faith that
         such act or nonact was in, or was not opposed to, the best interests of
         the Company.

                           (d) "Committee" shall mean the Compensation and
Incentives Committee of the Board or any other committee of the Board performing
similar functions.

                           (e) "Disability" shall mean the Executive's inability
to substantially perform his duties and responsibilities under this Agreement by
reason of any physical or mental incapacity for a period of 180 consecutive
days.

                           (f) "Effective Date" shall mean March 11, 2002.

                           (g) "Emergence" shall occur when a plan of
reorganization that is confirmed by the bankruptcy court becomes effective or
the Company otherwise emerges from Chapter 11, as a result of which the business
of the Company is maintained on an ongoing basis, whether maintained by the
Company, the debtor in possession or by an entity that has acquired all or
substantially all of the Company's or debtor in possession's assets.

                           (h) "Good Reason" shall mean (i) a breach by the
Company of a material term of this Agreement, which breach has not been cured by
the Company within 30 days following the Company's receipt of written notice by
the Executive pursuant to Section 24 that such breach has occurred or (ii)
receipt by the Executive of a notice of non-extension of the Term.

                           (i) "Inducement Payment" shall mean the payment paid
to the Executive under Section 5 of the Prior Agreement.

                           (j) "KERP" shall mean the Company's Key Employee
Retention Plan, as in effect from time to time, and any successor thereto or any
substitute therefor approved by the Bankruptcy Court.

                           (k) "Restructuring Date" shall mean the date on which
any Emergence occurs.

                           (l) "Term" shall mean the period commencing on the
Effective Date and ending on April 30, 2004; provided, however, that the Term
shall be automatically extended for an additional year on each anniversary of
the Effective Date, unless written notice of non-extension is provided by either
party at least 30 days prior to any such anniversary.



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<PAGE>

                  2. Employment.

                  The Company hereby employs the Executive, and the Executive
hereby accepts such terms of employment, for the Term, on the terms and
conditions set forth herein. Either Party may terminate the Agreement at any
time during the Term upon notice to the other Party delivered in accordance with
Section 24 hereof; provided, however, that the Executive's termination of the
Agreement for Good Reason is subject to the provisions of Section 9(c).

                  3. Position, Duties and Responsibilities.

                           (a) During the Term, the Executive shall serve as the
Chairman of the Board and Chief Executive Officer of the Company, with overall
responsibility for the general management of the affairs of the Company. The
Executive shall perform such duties and carry out such responsibilities incident
to his position as may be determined from time to time by the Board, which shall
be consistent with the duties and responsibilities customarily performed by
persons in a similar executive capacity. The Executive shall devote
substantially all of his business time, attention and skill to the performance
of such duties and responsibilities, and shall use his reasonable best efforts
to promote the interests of the Company. The Executive shall have all authority
commensurate with such position, including, without limitation, authority for
decisions on hiring and terminations of Company personnel. All other executive
officers of the Company shall report to the Executive. The Executive, in
carrying out his duties under this Agreement, shall report directly to the
Board. The Executive shall not knowingly, without the prior written approval of
the Board, engage in any other business activity which is in violation of
written policies established from time to time by the Company.

                           (b) During the Term, the Company shall nominate the
Executive for re-election as a director at each annual meeting of shareholders
coinciding with the expiration of his term as a director and recommend him for
re-election. If elected by the shareholders, he shall serve as a member of the
Board during the Term.

                           (c) Anything herein to the contrary notwithstanding,
nothing shall preclude the Executive from (i) serving on the boards of directors
on which he currently serves and on other corporate boards or the boards of a
reasonable number of trade associations and/or charitable organizations (subject
to the reasonable approval of the Board), (ii) engaging in charitable activities
and community affairs, and (iii) managing his personal investments and affairs,
provided that such activities do not materially interfere with the proper
performance of his duties and responsibilities hereunder.

                           (d) The Executive shall perform his services
hereunder primarily at the Company's headquarters. To that end, the Company
shall provide the Executive with office space and staff at its headquarters in
Troy, Michigan that are commensurate with his position and duties hereunder.



                                       3
<PAGE>

                  4. Base Salary.

                  During the Term, the Executive shall be paid an annualized
base salary, payable in accordance with the regular payroll practices of the
Company, of $1,500,000 (such base salary, as in effect from time to time
hereunder, being referred to as the "Base Salary"). The Base Salary shall be
reviewed no less frequently than annually for increase in the discretion of the
Board and/or Committee. The Base Salary, including any increase, shall not be
decreased during the Term. To the extent that the Executive was paid at a lesser
annual rate of base salary during the period (the "Interim Period") from the
Effective Date through the date hereof, the Executive shall be entitled to
receive promptly following the date hereof an additional payment (less
applicable withholdings) so that the Executive will have been paid at the
initial Base Salary rate for the Interim Period.

                  5. Incentive Awards.

                  During the Term, the Executive shall be eligible for an annual
bonus under the annual incentive portion of the KERP. The Executive's target
bonus under the KERP or, following the Restructuring Date, any other annual
cash-based incentive program of the Company ("Target Bonus") shall be 125% of
his then-current Base Salary. The actual bonus paid to the Executive hereunder
may be greater or less than the Target Bonus, based on the level of achievement
of performance goals. Payment of the annual bonus shall be made at the same time
that other senior-level executives receive their incentive awards. Following the
Restructuring Date, the Executive shall participate in such annual and long-term
cash- and/or equity-based incentive programs as the senior executives of the
Company may participate from time to time.

                  6. Success Payment. The Executive shall be entitled to receive
an incentive payment with respect to the Emergence (such payment, the "Success
Payment"). The amount of the Success Payment and any other terms and conditions
applicable thereto shall be determined in connection with the process during
which the Company's plan of reorganization is developed and finalized.

                  7. Other Employee Benefit Programs.

                  During the Term, subject to the provisions of Section 8(e),
the Executive shall be entitled to participate in all employee pension and
welfare benefit plans and programs made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, pension, profit
sharing, savings and other retirement plans or programs, medical, dental,
hospitalization, short-term and long-term disability and life insurance plans,
accidental death and dismemberment protection, travel accident insurance, and
any other pension or retirement plans or programs and any other employee welfare
benefit plans or programs that may be sponsored by the Company from time to
time, including any plans that supplement the above-listed types of plans



                                       4
<PAGE>

or programs, whether funded or unfunded. If, during the Term, the Board adopts a
new supplemental executive retirement program for its executives or approves the
initial participation of any executive in the Company's Special Supplemental
Executive Retirement Program, then the Executive will participate in the
applicable plan on terms and conditions that are no less favorable than those
applicable to any other participant in such plan.

                  8. Reimbursement of Business and Other Expenses; Perquisites;
Vacations.

                           (a) The Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement
and the Company shall promptly reimburse him for all business expenses incurred
in connection with carrying out the business of the Company, subject to
documentation in accordance with the Company's policy.

                           (b) The Company shall pay to the Executive's
financial advisor and attorneys all reasonable financial advisor and legal
expenses incurred in connection with the preparation of both the Prior Agreement
and this Agreement, up to an aggregate maximum of $200,000. During the Term, the
Company shall reimburse the Executive for all reasonable legal expenses incurred
by the Executive in connection with the negotiation of the Executive's
employment and compensation arrangements with the Company.

                           (c) During the Term, the Executive shall be entitled
to participate in all of the Company's executive fringe benefits in accordance
with the terms and conditions of such arrangements as are in effect from time to
time for the Company's senior-level executives.

                           (d) The Company acknowledges its obligation to
provide the Executive with transportation during the Term that provides him with
reasonable security to address bona fide business-oriented security concerns,
and shall, at Company expense, make available to the Executive (and his spouse
when traveling with him) Company or other private aircraft for business and
personal use at his reasonable discretion, provided that any such personal use
shall be limited to travel within the United States. In addition, the Company
shall, at Company expense, make available to the Executive Company or other
private aircraft for the Executive's use and that of his spouse, for the purpose
of weekly transportation between Detroit, Michigan and the New York City
Metropolitan Area or his residence in Florida. It is recognized that the
Executive's travel by Company or other private aircraft is required for security
purposes and, as such, all reasonable uses by the Executive (including uses with
his family) will constitute business use of the aircraft and shall not be
subject to reimbursement by the Executive. The Company shall provide additional
payments to the Executive on a fully grossed up basis to cover applicable
federal, state and local income and excise taxes,



                                       5
<PAGE>

when and to the extent, if any, that such taxes are payable by the Executive
with respect to the foregoing aircraft usage.

                           (e) The Executive acknowledges that he currently is
receiving certain medical, dental and hospitalization benefits from a former
employer. For the period of the Term commencing on the Effective Date and ending
on December 31, 2003, in lieu of medical, dental and hospitalization benefits
under the Company's benefit plans, the Company will reimburse the Executive in
cash for the Executive's (and his spouse's) out-of-pocket health expenses not
covered by the benefits provided by his former employer, subject to the
submission of appropriate documentation of such expenses.

                           (f) During the Term, the Company shall:

                                    (i) make available to the Executive a car
         and driver for his use in Michigan and in the New York City
         Metropolitan Area and for his use in transportation between his Florida
         residence and the airport with respect to the travel described in the
         second sentence of paragraph 8(d) above;

                                    (ii) at the Company's expense, make
         available to the Executive and his spouse full-time leased housing,
         reasonably satisfactory to the Executive and commensurate with his
         position, in the Detroit metropolitan area through the Restructuring
         Date or such later date as may be approved by the Board and, until such
         full-time housing is made available, will continue to make available to
         the Executive and his spouse appropriate temporary housing in the
         Townsend Hotel and, subject to receipt from the Executive of
         documentation in accordance with the Company's policy, will reimburse
         the Executive for reasonable living expenses incurred by the Executive
         while residing at the Townsend Hotel;

                                    (iii) reimburse the Executive, in accordance
         with the Company's relocation policy for senior executives, for
         reasonable expenses incurred in connection with relocating his
         residence to the Detroit, Michigan metropolitan area;

                                    (iv) subject to receipt from the Executive
         of documentation in accordance with the Company's policy, reimburse the
         Executive for financial and tax counseling that is reasonable and
         commensurate with the Executive's position; and

                                    (v) make to the Executive additional
         payments on a fully grossed-up basis to cover applicable taxes, when
         and to the extent, if any, that such taxes are payable by the Executive
         with respect to benefits provided under this Section 8(f).



                                       6
<PAGE>

                           (g) During the Term, the Executive shall be entitled
to six weeks' paid vacation per year.

                           (h) The Company acknowledges and agrees that the
Inducement Payment shall no longer be subject to the repayment provisions
contained in the second sentence of Section 9(b) of the Prior Agreement.

                  9. Termination of Employment. Upon the termination of the
Executive's employment with the Company for any reason, the Executive shall be
entitled to: (i) promptly, but in no event later than 10 days following the
effective date of such termination, a cash lump sum payment equal to (a) any
accrued and unpaid Base Salary as of the effective date of the termination, (b)
any accrued vacation pay and (c) any unpaid annual bonus for the fiscal year
ending prior to the fiscal year in which the termination occurs that would
otherwise be payable to the Executive if he remained employed by the Company;
(ii) all vested benefits accrued under any benefit plans, programs or
arrangements in which the Executive participated during the Term; and (iii) an
amount equal to such reasonable and necessary business expenses incurred by the
Executive prior to the effective date of the termination which had not
previously been reimbursed pursuant to Section 8(b). In addition to the
foregoing, the Executive shall be entitled to the payments and benefits
described below.

                           (a) Termination of Employment by the Company. In the
event the Executive's employment is terminated (x) by the Company other than for
Disability or Cause or (y) subject to Section 9(c), by the Executive for Good
Reason, in either case, the Executive shall be entitled to receive the following
payments and benefits:

                                    (i) (I) If such termination occurs on or
                  prior to April 30, 2003 and prior to the Plan Confirmation
                  Date (as defined below), promptly but in no event later than
                  10 days following the effective date of such termination, a
                  cash lump sum payment equal to (A) minus (B), where (A) is
                  equal to the sum of (x) 300% of the Executive's Base Salary as
                  in effect immediately prior to the effective date of such
                  termination, plus (y) the Executive's Target Bonus as in
                  effect with respect to the year in which such termination
                  occurs, and where (B) equals the aggregate amount paid by the
                  Company pursuant to Section 5 of the Prior Agreement.

                                             (II) If such termination occurs
                  following April 30, 2003 but prior to the date (for purposes
                  of this Section 9(a), the "Plan Confirmation Date") on which a
                  confirmed plan of reorganization (other than a Plan of
                  Liquidation (as defined below)) is approved by the Bankruptcy
                  Court (as defined in Section 27), then (1) promptly, but in no
                  event later than 10 days following the effective date of such
                  termination, a cash lump sum



                                       7
<PAGE>

                  payment equal to the sum of (x) the Executive's Base Salary as
                  in effect immediately prior to the effective date of such
                  termination plus (y) the Executive's Target Bonus as in effect
                  with respect to the year in which such termination occurs and
                  (2) promptly, but in no event later than 10 days following the
                  Plan Confirmation Date, an amount equal to 200% of the
                  Executive's Base Salary as in effect immediately prior to the
                  effective date of such termination. For purposes of this
                  Section 9(a)(i)(II), a "Plan of Liquidation" means any chapter
                  11 plan (A) under which less than 50% of the Debtors'
                  operating business continues as a going concern, and (B) which
                  does not result in a discharge of the Debtors under 11 U.S.C.
                  Section 1141; provided, that a "Plan of Liquidation" shall not
                  include any chapter 11 plan that results in a discharge and
                  more than 50% of the Debtors' operating business continuing as
                  a going concern, either through a stand-alone chapter 11 plan,
                  one or more sales of assets, an investment from a third party,
                  or any combination of the foregoing.

                                             (III) Notwithstanding clauses
                  (i)(I) and (i)(II) of this Section 9(a), if such termination
                  occurs following the Plan Confirmation Date (or in
                  contemplation of the Plan Confirmation Date in order to reduce
                  the amounts payable hereunder), promptly but in no event later
                  than 10 days following the effective date of such termination,
                  a cash lump sum payment equal to the sum of (x) 300% of the
                  Executive's Base Salary as in effect immediately prior to the
                  effective date of such termination, plus (y) the Executive's
                  Target Bonus as in effect with respect to the year in which
                  such termination occurs.

                                    (ii) The Executive shall be entitled to
         continued participation to the extent provided in medical, dental,
         hospitalization and life insurance coverage and in all other employee
         welfare plans and programs in which he was participating on the date of
         termination for a period of two years following the effective date of
         his termination hereunder; provided, that with respect to any portion
         of such two-year period which precedes January 1, 2004, the Company's
         obligation with respect to medical, dental and hospitalization
         insurance shall be limited to the cash reimbursement benefit set forth
         in Section 8(e) hereof; and

                                    (iii) Any equity awards then held by and
         deferred compensation or pension benefits accrued by the Executive that
         are not vested and/or exercisable shall become fully vested and/or
         exercisable as of the effective date of such termination.



                                       8
<PAGE>

                           (b) Termination of Employment Other than as Provided
Under Section 9(a). In the event the Executive's employment hereunder terminates
for any reason other than as provided under Section 9(a) above, the Executive
(or his estate or his beneficiaries, as the case may be) shall be entitled to
receive payment of (i) the Base Salary through the end of the month during which
the effective date of termination occurs (or if the termination is by reason of
the Executive's Disability, through the end of the Term) and (ii) a pro rata
portion of the annual bonus described in Section 5 for the year in which such
termination occurs, equal to the product of (x) the Executive's Target Bonus and
(y) a fraction, the numerator of which shall be the number of full or partial
calendar months in the fiscal year ending on the effective date of the
Executive's termination and the denominator of which shall be the number twelve
(12); provided, however, that payment under clause (ii) of this paragraph (b)
shall not be made in the event such termination is by the Company for Cause or
by the Executive without Good Reason.

                           (c) Termination For Good Reason. For a termination of
the Executive's employment under clause (y) of the first paragraph of Section
9(a) (other than by reason of non-extension of the Term) to be effective, the
Executive shall have given the Company written notice, within 60 days following
the occurrence of any event or circumstance constituting a breach of a material
term of this Agreement, of the specific event or circumstance constituting such
breach, and the Company shall have failed to cure such breach within 30 days
following receipt of such written notice.

                           (d) Release of Claims. Except in the event the
Executive's employment hereunder is terminated because of his death, as a
condition of the Executive's entitlement to any of the severance rights and
benefits provided in this Section 9 (other than those payments and benefits set
forth in the introductory paragraph of this Section 9), the Executive shall be
required to execute and honor a mutual release of claims substantially in the
form attached hereto as Exhibit A. In addition, concurrent with the Executive's
execution of such mutual release of claims, the Company shall be required to
execute and honor such mutual release of claims.

                  10. Restrictive Covenants.

                           (a) The Executive agrees that any right to receive
any further payments or benefits hereunder will cease if the Executive breaches
any of the provisions of Section 10(b) through 10(e) below.

                           (b) Non-Compete. By and in consideration of the
substantial compensation and benefits to be provided by the Company hereunder,
and further in consideration of the Executive's exposure to the proprietary
information of the Company, the Executive agrees that he shall not, during the
Term and for at least 12 months following termination of employment for any
reason, directly or indirectly own, manage, operate, join, control, be employed
by, or participate in the ownership, management, operation or control of or be
connected in any manner, including, but not



                                       9
<PAGE>

limited to, holding the positions of officer, director, shareholder, consultant,
independent contractor, employee, partner, or investor, with any Competing
Enterprise; provided, however, that the Executive may invest in stocks, bonds,
or other securities of any corporation or other entity (but without
participating in the business thereof) if such stocks, bonds, or other
securities are listed for trading on a national securities exchange or Nasdaq
National Market and the Executive's investment does not exceed 3% of the issued
and outstanding shares of capital stock, or in the case of bonds or other
securities, 3% of the aggregate principal amount thereof issued and outstanding.
"Competing Enterprise" shall mean and be limited to the following entities,
including successors thereto: Albertson's Inc., American Retail Group, Inc.,
Carrefour sa, Fleming Companies, Inc., Kohl's Corporation, The May Department
Store Company, J.C. Penny Company, Royal Ahold, Safeway, Inc., Sears, Roebuck
and Co., ShopKo Stores, Inc., Supervalue Inc., Target Corp., The Home Depot,
Inc., Toys R Us Inc., TJX Companies, Inc., and Wal-Mart Stores, Inc.

                           (c) Nonsolicitation. By and in consideration of the
substantial compensation and benefits to be provided by the Company hereunder,
and further in consideration of the Executive's exposure to the proprietary
information of the Company, the Executive agrees that he shall not, during the
Term and for at least 18 months following termination of employment for any
reason, without the express prior written approval of the Company, (i) directly
or indirectly, in one or a series of transactions, recruit, solicit or otherwise
induce or influence any proprietor, partner, stockholder, lender, director,
officer, employee, sales agent, joint venturer, investor, lessor, supplier,
customer, agent, representative or any other person which has a business
relationship with the Company, or had a business relationship with the Company
within the 24 month period preceding the date of the incident in question, to
discontinue, reduce or modify such employment, agency or business relationship
with the Company, or (ii) employ or seek to employ or cause any Competing
Enterprise to employ or seek to employ any person or agent who is then (or was
at any time within six months prior to the date the Executive or the Competing
Enterprise employs or seeks to employ such person) employed or retained by the
Company.

                           (d) Confidential Information. During the Term and at
all times thereafter (including following the cessation of the Executive's
employment for any reason), the Executive agrees that he will not divulge to
anyone (other than the Company or any persons employed or designated by the
Company or the Executive's financial or legal advisors) any knowledge or
information of a confidential nature relating to the business of the Company or
any of its subsidiaries or affiliates (unless ascertainable from public or
published information or trade sources), as well as any information of a
confidential nature obtained from customers, clients or other third parties,
including, without limitation, all types of trade secrets and confidential
commercial information, and the Executive further agrees not to disclose,
publish or make use of any such knowledge or information without the prior
written consent of the Company; provided, however, that the Executive may
disclose any such information if required by a court order or other similar
request.



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<PAGE>

                           (e) Cooperation. The Executive agrees to cooperate
with the Company, during the Term and thereafter (including following the
cessation of the Executive's Employments for any reason), by being reasonably
available to testify on behalf of the Company or any subsidiary or affiliate in
any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate, in any
such action, suit or proceeding, by providing information and meeting and
consulting at mutually agreeable times and places with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate, as reasonably requested. The Company agrees to
reimburse the Executive for all expenses actually incurred by the Executive in
connection with his provision of testimony or assistance.

                           (f) The Executive agrees that any breach of the terms
of this Section 10 would result in irreparable injury and damage to the Company
for which the Company would have no adequate remedy at law; the Executive
therefore also agrees that in the event of said breach or any reasonable threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Executive and/or any and all persons and/or entities
acting for and/or with the Executive. The terms of this paragraph shall not
prevent the Company from pursuing any other available remedies for any breach or
threatened breach hereof, including, but not limited to, remedies available
under this Agreement and the recovery of damages.

                           (g) The provisions of this Section 10 shall survive
any termination of this Agreement and the Term, and the existence of any claim
or cause of action by the Executive against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants and agreements of this Section.

                  11. Indemnification.

                           (a) The Company agrees that if the Executive is made
a party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director, independent contractor or
employee of the Company or is or was serving at the request of the Company as a
director, independent contractor, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, independent contractor, employee or agent, the Executive shall be
indemnified and held harmless by the Company to the fullest extent legally
permitted or authorized by the Company's certificate of incorporation or bylaws
or resolutions of the Company's Board of Directors or, if greater, by the laws
of the State of Michigan against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in



                                       11
<PAGE>

settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, independent contractor, employee or agent of the
Company or other entity and shall inure to the benefit of the Executive's heirs,
executors and administrators; provided, however, that the indemnification
provided for in this Section 11(a) shall not apply with respect to any act or
omission by the Executive that occurred prior to the date (the "Filing Date") on
which the Company filed its Chapter 11 case, it being understood that the
Executive's right to indemnification for the period prior to the Filing Date
shall be the same as that provided to the Company's other directors and
executive officers (as applicable) during such period. The Company shall advance
to the Executive all reasonable costs and expenses incurred by him in connection
with a Proceeding within 20 days after receipt by the Company of a written
request for such advance. Such request shall include an undertaking by the
Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.

                           (b) Neither the failure of the Company (including its
board of directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Executive under Section 11(a) above that indemnification
of the Executive is proper because he has met the applicable standard of
conduct, nor a determination by the Company (including its board of directors,
independent legal counsel or stockholders) that the Executive has not met such
applicable standard of conduct, shall create a presumption that the Executive
has not met the applicable standard of conduct.

                           (c) The Company agrees to continue and/or maintain a
directors and officers' liability insurance policy covering the Executive to the
same extent the Company provides such coverage for its other executive officers
and directors and for not less than the amounts in effect for its other
executive officers and directors.

                  12. Letter of Credit.

                  Promptly following receipt of Court Approval (as defined in
Section 27 below), the Company shall revise the letter of credit in the amount
of $10,000,000 that was previously established with respect to the Prior
Agreement (or shall replace such letter of credit with a letter of credit in the
same amount obtained from a financial institution satisfactory to Executive) in
a form reasonably acceptable to the Executive such that either such letter of
credit shall be for the sole purpose of satisfying the Company's obligations
hereunder. The Company shall cause any such letter of credit to remain in full
force and effect until the date on which is entered a final order approving and
authorizing this Agreement, which order is not subject to appeal, at which time
the Company shall cause such letter of credit to be surrendered and cancelled.



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<PAGE>

                  13. Assignability; Binding Nature.

                  This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs (in the case of the
Executive) and assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation of all or substantially all of the assets of the Company, or in
connection with a Chapter 11 case, provided that the assignee or transferee is
the successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that, in the event of a sale or reorganization
transaction as described in the preceding sentence, it shall take whatever
action it legally can in order to cause such assignee or transferee to expressly
assume the liabilities, obligations and duties of the Company hereunder. No
rights or obligations of the Executive under this Agreement may be assigned or
transferred by the Executive other than his rights to payments hereunder, which
may be transferred only by will or operation of law, except as provided in
Section 19 below.

                  14. Representations.

                  The Company represents and warrants that it is fully
authorized and empowered by action of the Board to enter into this Agreement,
and that the performance of its obligations under this Agreement will not
violate any agreement between it and any other person, firm or organization.

                  15. Entire Agreement.

                  This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and, subject to Section
27, supersedes all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the Parties with respect
thereto (but not including his other services as a director), including without
limitation the Prior Agreement.

                  16. Amendment or Waiver.

                  No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer or director of the Company. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer or director of the Company, as the case may be.



                                       13
<PAGE>

                  17. Severability.

                  In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.

                  18. Survival.

                  The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.

                  19. Beneficiaries/References.

                  The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any amounts payable hereunder following the Executive's death by giving
the Company written notice thereof in accordance with Section 24 hereof. In the
event of the Executive's death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.

                  20. Excise Tax Gross-Up Payments.

                  In the event that it shall be determined that any payment or
distribution by the Company or other amount with respect to the Company to or
for the benefit of the Executive pursuant to the terms of this Agreement or
otherwise (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall pay to the Executive,
prior to the time any excise tax imposed by Section 4999 of the Code ("Excise
Tax") is payable with respect to such Aggregate Payment, an additional amount
which, after the imposition of all taxes thereon, is equal to the Excise Tax on
the Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of payment pursuant to this Section 20 shall be made by
an independent auditor (the "Auditor") jointly selected by the Company and the
Executive and paid by the Company.

                  The Auditor shall be a nationally recognized United States
public accounting firm which has not, during the two years preceding the date of
its selection, acted in any way on behalf of the Company or any Affiliate
thereof. If the Executive and the Company cannot agree on the firm to serve as
the Auditor, then the Executive and the Company shall each select one accounting
firm and those two firms shall jointly select the accounting firm to serve as
the Auditor.



                                       14
<PAGE>

                  21. Governing Law/Jurisdiction.

                  This Agreement shall be governed by and construed and
interpreted in accordance with the laws of Michigan without reference to
principles of conflict of laws.

                  22. Resolution of Disputes.

                  Prior to the Restructuring Date, any disputes arising under or
in connection with this Agreement shall be settled in the Bankruptcy Court (as
defined in Section 27). Thereafter, any disputes arising under or in connection
with this Agreement shall, at the election of the Executive or the Company, be
resolved by binding arbitration, to be held in New York City, New York in
accordance with the rules and procedures of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. All costs and expenses of any
arbitration or court proceeding (including fees and disbursements of counsel)
shall be borne by the respective Party incurring such costs and expenses, but
the Company shall reimburse the Executive for such reasonable costs and expenses
if he prevails to any substantial degree in such arbitration or court
proceeding.

                  23. Tax Withholding.

                  All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable Federal, state and local
tax withholding requirements, except as otherwise provided herein.

                  24. Notices.

                  Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:

                  If to the Company:        Kmart Corporation
                                            3100 West Big Beaver Road
                                            Troy, MI 48084-3163
                                            Attention: General Counsel

                  If to the Executive:      James Adamson
                                            c/o Kmart Corporation
                                            3100 west Big Beaver Road
                                            Troy, MI 48084-3163

                  With a copy to:           Brad Eric Scheler
                                            Fried, Frank, Harris, Shriver &
                                            Jacobson
                                            One New York Plaza
                                            New York, NY 10004



                                       15
<PAGE>

                  25. Headings.

                  The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

                  26. Counterparts.

                  This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

                  27. Court Approval.

                  Notwithstanding anything in this Agreement to the contrary,
the effectiveness of this Agreement is subject to the approval ("Court
Approval") of the United States Bankruptcy Court for the Northern District of
Illinois (the "Bankruptcy Court"). The Company shall, as soon as practicable
after the Effective Date, undertake to file a motion seeking, and use its best
efforts to obtain, approval of this Agreement by the Bankruptcy Court.



                                       16
<PAGE>

                  IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the Effective Date.

                                                 KMART CORPORATION

                                                 -------------------------
                                                 By: Robert Kennedy
                                                 Chairman, Compensation and
                                                 Incentives Committee of the
                                                 Board of Directors


                                                 EXECUTIVE


                                                 -------------------------
                                                 James Adamson



                                       17

Source: OneCLE Business Contracts.